Four Things to Know When Buying a Distressed Property

Purchasing a distressed property can be a great investment move. But you need to be careful; you don't want that asset to become a liability.

I've been thinking a lot about real estate lately, mainly because I am selling my home in preparation for a move across the country. It's been an interesting process. Because we want to move quickly and just?be done with this whole thing, we are working toward a fast sale.

Even though we aren't in a position where we would be considered?distressed, I've been thinking about distressed real estate, and the investment opportunities it can provide — if you're into that sort of thing (which I'm really not).

Before you buy a distressed property, it's important to understand the ins and outs. Here are four?things to know before you purchase a distressed property:

Distressed Property

1. How Much You Can Spend

The most important thing to know is how much you can spend on the property. If you have the capital resources to pay with cash, know the exact amount, and remember that there are usually a number of closing costs and other expenses associated with real estate transactions.

If you plan to get a loan to help you complete your purchase, you need to get a pre-approval for an amount from a lender. Distressed properties often go quickly, and you need to be able to make a deal very, very quickly. Knowing exactly what you have at your disposal can ensure that you can make your move.

2. Your Purpose

Figure out what you plan to do with the distressed property. Do you want to fix it up cheap, and then flip it? Many of those looking to get into real estate like to buy distressed properties and then rent them out. This can be a good way to build a passive income stream. In some cases, buying a distressed property is about fixing it up so that you can live in it and enjoy it, building equity over time so you come out ahead when you sell.

Have your purpose in mind ?so that you can get the right property for your needs.

3. The Neighborhood

Next, you want to check the location. Does the neighborhood meet your needs? The neighborhood of the distressed property matters if you are going to live in the house vs. renting it out. If you do want to rent it out, you also need to understand the tenants you are targeting. Make sure the neighborhood matches the purpose of the purchase.

4. What Needs to Be Done With the Home

Finally, make sure you understand what needs to be done with the house. When buying a distressed property, you should see it for yourself. Visit the property so that you understand what needs to be done, from landscaping to cosmetic fixes to structural overhauls. See it with your own eyes and figure out whether it really is worth the price you'll pay.

2 thoughts on “Four Things to Know When Buying a Distressed Property”

  1. Excellent post. Whenever I develop a property I always have a budget to work with. Having a budget gives me the discipline to get through the project quickly and on time so I can eventually generate a profit.

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